Interface between IP and Competition Law in Canada

Ron Dimock, Dimock Stratton LLPJohn Laskin, Torys LLP

April 27, 2010

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Agenda Objectives and Key Features of IP Law

Objectives and Key Features of Competition Law

Patented Medicines - Reverse Payments

Licensing Agreements

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Patent LawObjectives To promote disclosure of inventions and technological advances To hasten the availability of useful knowledge to the public sphere

Key Features 20 year statutory monopoly—in exchange, full and complete

disclosure of the invention Exclusive right of making, constructing and using an invention and

vending it to others to be used Infringement—any act which interferes with the full enjoyment of the

monopoly Remedies:

• pre-grant: reasonable compensation• post-grant: election between damages or accounting of profits • exemplary or punitive damages (rare)• interim, interlocutory or permanent injunction

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Copyright LawObjectives To protect original works To promote the encouragement and dissemination of works To obtain a just reward for the creator

Key Features Life of the author and a period of 50 years after the author’s death Right to produce or reproduce the work or any substantial part thereof

in any material form Infringement—any act that only the owner of copyright has the right

to do, without the consent of that owner Remedies:

• damages or profits • statutory damages• exemplary or punitive damages• interim, interlocutory or permanent injunction

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Trade-mark LawObjectives To protect rights acquired by use or registration To avoid confusion of the public as to the source of products/services To guarantee consumers the quality of goods that they have come to

rely upon from that source

Key Features Exclusive right to use and remedies for infringement of that right Infringement—unauthorized use of a registered trade-mark on goods

in respect of which the mark was registered (or similar) Passing off—to trade off another’s goodwill by passing off one’s wares,

services or business as those of another, causing damage Remedies:

• damages or profits • destruction or delivery up• exemplary or punitive damages • interim, interlocutory or permanent injunctions

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Industrial Design LawObjectives Protection to works where copyright protection is not available Features of shape, configuration, pattern or ornament that, in a

finished article, appeal to and are judged solely by eye

Key Features Exclusive right to the use of that design in Canada for a period of up to

10 years Infringement—to apply the registered industrial design to an article for

purposes of sale, rental, exposure for sale or use of the article, without the consent of the proprietor of that design

Remedies:• damages or profits • destruction or delivery up• exemplary or punitive damages • interim, interlocutory or permanent injunctions

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Integrated Circuit Topography LawObjectives To protect topography relating to the design of the interconnections of

an integrated circuit

Key Features Period of protection is up to ten years Infringement—

• reproduce the topography (or any substantial part)• manufacture an integrated circuit product incorporating the topography• import or commercially exploit the topography or an integrated circuit

product that incorporates the topography Remedies:

• damages or profits • destruction or delivery up• exemplary or punitive damages • interim, interlocutory or permanent injunctions

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Competition Law The principle underlying competition law is that the public

interest is best served by competitive markets given that they lead to an efficient allocation of resources

Competition law seeks to prevent companies from inappropriately creating, enhancing or maintaining market power that undermines competition without offering offsetting economic benefits

Section 1.1 - Provides that the Act’s purpose is to encourage competition, efficiency and innovation in the Canadian economy

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IP Rights Provisions in the Competition Act Section 32

• Special remedies available where the mere exercise of IP rights unduly restrains trade or lessens competition

Section 76(3)• Remedial order may be made in price maintenance cases against a

person who has IP rights Section 79(5)

• Conduct involving the mere exercise of IP rights is not an anti-competitive act

Section 86• Establishes criteria for approval of specialization agreements by the

Tribunal

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Bureau’s IP Enforcement Guidelines (Sept 2000) Address circumstances in which the Bureau would seek to

restrain anti-competitive conduct associated with the exercise of IP rights

Address two general categories of conduct(1) Conduct involving the “mere exercise” of IP rights, and(2) Conduct involving “something more than the mere exercise” of IP rights

Section 32 will be used only in very rare circumstances and when the conduct cannot be remedied by the relevant IP statute

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Patented Medicines – Reverse PaymentsSettlements in Pharmaceutical Litigation May raise competition law issues in situations where payments

are going the “wrong way”• That is, the brand (or patent owner) pays an undisclosed amount of

money to a generic in exchange for settling the ongoing litigation and the generic refrains from entering the market with a competing product at what would be a substantially lower price

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Patented Medicines under PM(NOC) Regs.Steps to Registering a Patent Manufacturer of a branded drug is the “first person” to obtain a patent “First person” then files a New Drug Submission (“NDS”) or a

Supplemental New Drug Submission (“SNDS”) with Health Canada for approval under the Food and Drugs Act to market the drug and submits a Form IV Patent List in respect of the drug to the Minister of Health

Upon approval of the NDS or SNDS, Health Canada issues a Notice of Compliance (“NOC”) and the patent is added to the Patent Register

• Patents can only be added to the Patent Register by filing a NDS or SNDS • Listing requirements are complex and time sensitive

Advantages Once listed on the Patent Register, the patent is entitled to protection Prevents a generic drug manufacturer from obtaining an NOC for a

generic drug that, if marketed, would result in patent infringement

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Generic Entry under PM(NOC) Regs.Market Approval for Generics Manufacturer of a generic drug (or “second person”) must file an

Abbreviated New Drug Submission (“ANDS”) to obtain an NOC from the Minister of Health

An NOC is required before the generic can enter the Canadian market

Obligations of the Second Person Review Patent Register With its ANDS, file either:

• a statement of acceptance; or • a notice of allegation (“NOA”) that:

– the person appearing on the patent list is not the patentee or a person claiming under the patentee;

– the patent has expired;– the patent is not valid; or– the patent is not infringed

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Generic Entry under PM(NOC) Regs. (cont’d)

Prohibition Proceeding under PM(NOC) Regs. To delay generic entry, in response to the NOA from the generic (i.e.

second person), the brand (i.e. first person) must commence an application for an Order of Prohibition

Upon commencing an application in the Federal Court, the first person obtains a 24-month stay

During that 24-month period, the Minister is prohibited from issuing an NOC unless either a court determines the allegations made in the second person’s NOA are justified, or the patent(s) to which the NOA relates expire

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Reverse Payments in the United States Relevant Legislation Sherman Act - Protects the public from the failure of the market;

directed against conduct that unfairly tends to destroy competition Hatch-Waxman Act - Provides for new drug product exclusivity to

encourage research and development, as well as to increase the speed of the entry of generic drugs into the market

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Reverse Payments in the United StatesFederal Trade Commission Views reverse payment

settlements as a result of collusion to monopolize, and an anti-competitive act because they prevent competition in the market

FTC terms these payments as “Pay-for-Delay”, and notes they are on the rise

“Pay-for-Delay: how drug company pay-offs cost consumers billions” FTC Staff Study, January 2010

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Reverse Payments in the United StatesCase Law

In re Ciprofloxacin Hydrochloride, 544 F.3d 1323 (Fed. Cir. 2008) Settlement of patent claims by agreement, even those that involve the

exchange of substantial consideration, are not precluded by the Sherman Act, even if there is an adverse effect on competition

“A sizable exclusion payment from the patent holder to the generic manufacturer is not unexpected under the Hatch-Waxman Act, where the relative risks of litigation are redistributed”

In re Androgel Antitrust Litigation (No. II), MDL Docket 2084 (N.D. Ga. 2010) Settlement was not an unreasonable restraint of trade because it did

not exceed the scope of the patent

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Reverse Payments in Canada Is there an incentive in Canada for a brand to settle a

proceeding under the PM(NOC) Regs. with the first generic to reach a hearing on the merits?

First persons are not permitted to defend against allegations by subsequent generics after the same allegation made by an earlier generic has been found to be justified

Where a brand fears the first generic may succeed in the prohibition proceeding on its invalidity allegations, there is an incentive to settle before a decision is rendered to prevent a flood of generics from entering the market

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Reverse Payments in CanadaCompetition Act versus IP Rights A patent, by its nature, results in a lessening of competition by

granting the patentee the right to exclude others Eli Lilly v. Apotex, 2005 FCA 361

• The mere exercise of an IP right in Canada, such as enforcing an issued patent, does not in itself violate the provisions of the Competition Act

• Where there is evidence of “something more than the mere exercise of patent rights” that may affect competition in the relevant market, the Competition Act may apply

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Reverse Payments in Canada Section 32 - In any case where use has been made of the exclusive rights and

privileges conferred by one or more patents for invention, by one or more trade-marks, by a copyright or by a registered integrated circuit topography, so as to

(a) limit unduly the facilities for transporting, producing, manufacturing, supplying, storing or dealing in any article or commodity that may be a

subject of trade or commerce,(b) restrain or injure, unduly, trade or commerce in relation to any such

article or commodity,(c) prevent, limit or lessen, unduly, the manufacture or production of any

such article or commodity or unreasonably enhance the price thereof, or(d) prevent or lessen, unduly, competition in the production, manufacture, purchase, barter, sale, transportation or supply of any such article or

commodity,the Federal Court may make one or more of the orders referred to in subs. (2)

The Bureau will seek a remedy for the unilateral exercise of IP rights only if the circumstances specified in section 32 are met and the alleged competitive harm stems directly from the refusal and nothing else

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Reverse Payments in Canada Jurisprudence thus far has been under the old

section 45 of Competition Act, which required that an act result in an “undue” lessening of competition

New section 45 is a per se offence• There is no requirement to show “undueness”

New section 90.1 is a reviewable practice• Permits the Bureau to seek remedial cease-and-

desist orders in connection with agreements between competitors that substantially lessen or prevent competition

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Reverse Payments in Canada Section 45(1) - Every person commits an offence who, with a

competitor of that person with respect to a product, conspires, agrees or arranges(a) to fix, maintain, increase or control the price for the supply of the product; (b) to allocate sales, territories, customers or markets for the production or supply of the product; or (c) to fix, maintain, control, prevent, lessen or eliminate the production or supply of the product

“Competitor” includes a person who it is reasonable to believe would be likely to compete with respect to a product in the absence of a conspiracy, agreement or arrangement to do anything referred to in subsection 45(1)(a) to (c)

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Reverse Payments in Canada Will the parties be able to prove that the reverse payment was

ancillary to and reasonably necessary for the agreement to settle the proceeding?

Section 45(4) - No person shall be convicted… under subs. (1)… if (a) that person establishes, on a balance of probabilities, that

(i) it is ancillary to a broader or separate agreement or arrangement that includes the same parties, and

(ii) it is directly related to, and reasonably necessary for giving effect to, the objective of that broader or separate agreement or arrangement; and (b) the broader or separate agreement or arrangement, considered alone, does not contravene that subsection

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Reverse Payments in Canada Section 90.1(1) - If, on application by the Commissioner, the

Tribunal finds that an agreement or arrangement — whether existing or proposed — between persons two or more of whom are competitors prevents or lessens, or is likely to prevent or lessen, competition substantially in a market, the Tribunal may make an order(a) prohibiting any person — whether or not a party to the agreement or arrangement — from doing anything under the agreement or arrangement; or(b) requiring any person — whether or not a party to the agreement or arrangement — with the consent of that person and the Commissioner, to take any other action

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Licensing Agreements May raise competition law issues in situations where a

licensor holding IP rights imposes restrictions on a licensee that:

• “control, prevent, less or eliminate the production or supply of the production”; or

• prevent or lessen competition substantially in a market If that licensor has market power, these restrictions may be

an abuse of dominance

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Licensing Agreements - Fact Scenario Licensor has developed a patented leather-cleaning product It grants the licensee a non-exclusive license to manufacture

the product (i.e., the licensee is free to manufacture other leather-cleaning products for the licensor’s competitors)

However, the license agreement prohibits the licensee from developing and manufacturing its own leather-cleaning product

Prior to the 2009 amendments, this license agreement would likely not raise any issue under section 45 (but might raise an issue under section 79 if the licensor had market power)

No enforcement likely under section 32• Only expected in certain narrowly defined circumstances

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Licensing Agreements - Fact Scenario (cont’d) Considerations under Section 45:

• Are the licensor and the licensee potential competitors?• Is the restriction a “naked restraint” on competition?• Does the ancillary restraints defence apply?

Considerations under Section 90.1:• Are the licensor and the licensee potential competitors?• Is there a likelihood that the license agreement will result in the

removal of a vigorous and effective [potential] competitor?• Is the restriction reasonably necessary?

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Licensing Agreements - Fact Scenario (cont’d) Section 79(1) - Where … the Tribunal finds that

(a) one or more persons substantially or completely control, throughout Canada or any area thereof, a class or species of business,

(b) that person or those persons have engaged in or are engaging in a practice of anti-competitive acts, and

(c) the practice has had, is having or is likely to have the effect of preventing or lessening competition substantially in a market,

the Tribunal may make an order prohibiting all or any of those persons from engaging in that practice

Section 79(4) - In determining whether the practice has had, is having or is likely to have the effect of preventing or lessening competition substantially in a market, the Tribunal shall consider whether the practice is a result of superior competitive performance

Section 79(5) - An act engaged in pursuant only to the exercise of any right or enjoyment of any interest derived under IP rights is not an anti-competitive act

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Licensing Agreements - Fact Scenario (cont’d) Considerations under Section 79

• Does the licensor have market power?• Has the licensor engaged in a practice of anti-competitive acts?

• Was the practice a result of superior competitive performance?• Was the act a mere exercise of an IP right?

• Has the practice had, is having or is likely to have the effect of preventing or lessening competition substantially in a market?

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Ron DimockRon Dimockrdimock@dimock.comrdimock@dimock.com

John LaskinJohn Laskinjlaskin@torys.comjlaskin@torys.com